Reflections on Volume

Big volume without further upside equals distribution
Big volume without further downside equals accumulation

Volume tends to peak at turning points
Volume often precedes price movement
Volume is a relative study

Tuesday, January 26, 2010

SapuraCrest Petroleum Indian project secured!

SapuraCrest announced last week that their 40% owned associate company
Offshore International FZC (OIFZC) received an award from Larsen & Toubro
Limited to provide works and services for the transportation and installation of four platform jackets in Mumbai High North Field. Work is to commence in November 2010 lasting till January 201I with contract worth c.USD75m (c.RM225m @ RM3.4:USD1).

-LTS3000 likely candidate to perform works , given that the barge is co -
owned by both parties via OIFZ. Scheduled for delivery by Q1FY10,
expectations are for the barge to be utilised for the RM3b Petronas
Umbrella project, but bearing in mind the Malaysian monsoon season, the
barge will be free to work other waters in Q4 and Q1, in line with the period they have announced (November 2010- January 2011).

-Project value small, but underlying potential remains immense .
Assuming net margins of 5%, the project will contribute about RM5m to
associate earnings (40% of RM12.8m). Although nothing to shout about, it
does signify Sapuracrest’s increasing exposure to the Indian market and its
continual aspirations of 40%-50% of foreign revenue contribution in the
next 3 years. They await another pipe-lay barge, also co-owned with another
Indian party (Quippo Prakash MDL) which will avail Sapuracrest to more
prospects in Indian market. We leave our esti mates unchanged as the contract value is minimal.

-Maintain forecast and BUY at unchanged target price of RM3.06
based on FY11EPS of 17sen and PER of 18x. We continue to like the
group’s “cream of the crop” order book (estimated to be worth more than
RM7b (excluding SapuraAcergy’s 50% share of the order book)), their vast
international presence (India, Australia, Japan) and strategic assets. While sustained drilling charter rates will provide a base for higher earnings going forward, the heightened oil and gas sector prospects and improve contract flows in 2010 will provide additional rerating catalyst.

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